D+C Development and Cooperation (No. 5, September/October 2001, p. 12-13)

After the setback at the Seattle WTO Ministerial Conference in 1999 which failed to start a new multilateral trade round, efforts are now underway to prepare the ground for the WTO meeting in Qatar in November. A conference organised by the German Foundation for International Development (DSE) in April brought together leaders from around the world to discuss 'Priorities for Future Multilateral Trade Negotiations' (see also D+C 4/2001, p. 30). We document some of the most important positions, beginning with the German Minister for Economic Cooperation and Development.

Three weeks ago, the German government adopted a Program of Action for Poverty Reduction. In that program, the government defines its contribution to the UN target of halving the proportion of people in extreme poverty in the global population by 2015. In the program against poverty, we have given extensive attention to the topic of trade, because in order to reduce poverty worldwide, it is essential to improve the developing countries' trade opportunities. Just how important this issue is has become evident again in the last few days. I am referring to the lawsuit of pharmaceutical companies against the South African government, which has now been dropped: WTO rules for the protection of intellectual property have direct impact on the lives of millions of people living with HIV. While it is important to protect intellectual property - also for the developing countries - it is equally important to design the rules in such a way that they do not conflict with social policy objectives, such as access to drugs for 4.2 million people in the Republic of South Africa living with HIV. I would like to use this opportunity to express once more my satisfaction that the pharmaceutical companies have withdrawn their case and that the two sides have agreed to engage in close collaboration.

Developing countries
in world trade

The developing countries' share in the world trade system has seen a distinct increase. Over the last 30 years, their share in world trade has risen from about one fourth to one third; their share in the trade in industrial goods actually doubled. However, not all developing countries have been able to take part in this process; that applies particularly to the poorest countries. For instance, the share of sub-Saharan Africa in world trade has seen a continual decline.

Moreover, the Least Developed Countries (LDCs) continue to be highly dependent on exporting a small range of commodities. On average, these countries' top three export products accounted for about 70 per cent of their total exports. Not only are the world market prices of these products highly volatile, they are also declining over the long term. The situation regarding foreign direct investment does not look any better: for instance, the share of foreign direct investment only accounts for less than 6 percent of the LDCs' GDP, as opposed to 17 per cent for the total group of developing countries. The current multilateral trade system is problematic for the developing countries in many ways: Subsidies, quotas and high tariffs continue to be widely applied for especially sensitive products, particularly in the textile and garment and agricultural sectors. For instance, average tariffs applied by OECD countries to the developing countries' agricultural export products continue to stand at around 15 per cent. Moreover, many developing countries find it very difficult to implement their new commitments in the areas of intellectual property, regulations concerning investment, and technical standards.

Improve market access

Can this divide between the industrialized and the developing countries be overcome? From my point of view, three fundamental principles are important in this context: First: We need to further improve developing countries' market access. A new trade round must bring about substantial improvements in this field. Through the OECD countries' tariffs alone, the developing countries are losing about as much income as they are receiving through development cooperation. The industrialized countries' trade barriers for products that are mainly exported by developing countries are higher than for export products of the industrialized countries. Under the Uruguay Round, the OECD countries lowered their tariffs on the products of other OECD countries by 45 per cent, but tariffs on developing countries' products only by 30 per cent. The goal of a new round should be to reach a balance here. With the support of the German government, the EU took the first step and abolished tariffs for products from the poorest countries as of March 5 this year. The German government will call upon the other industrialized countries to follow suit. A new World Bank study shows that the LDCs would be able to expand their exports by about 11 per cent if the United States, Japan and Canada too abolished tariffs for the poorest countries; this would amount to additional income of some three billion US dollars. Sub-Saharan Africa would even be able to expand its exports by some 14 per cent. However, the abolition of tariffs for the poorest countries is only the first step. Market access must also be improved for other developing countries. I would like to note, in particular, the relatively high tariffs on processed commodities. This makes it harder for the developing countries to diversify their economic and export structures and to reduce their dependence on commodity exports. This is important, in particular, because world market prices for most commodities are on the decline and the terms of trade for those countries which depend on commodities are increasingly deteriorating. As you know, free market access to the EU will only be introduced gradually for three sensitive products, including sugar. However, the German government is advocating a review of the EU sugar sector regulations as early as 2003.

Trade liberalization
no end in itself

I would now like to turn to the second point which I believe is important in order to overcome the divide between the industrialized and the developing countries in the WTO. We cannot limit ourselves to a liberalization agenda only. Trade liberalization is not an end in itself. The further liberalization of trade and investment activities must contribute towards the sustainable development of all countries. That will only be possible if the world trade order takes account of socio-political objectives, for instance in the areas of environmental protection, rural development, food safety, food security, and poverty reduction.The growing concern of the public must be taken seriously. Today, trade policy has an impact on all areas of life and affects everybody. This is why we need to actively design globalisation so as to give it a human face. One essential aspect in this context is that markets need rules - not just in order to achieve social goals but also in order for the markets to function efficiently to begin with. This also goes for global markets. The problem which we are faced with today is that national rules alone are no longer effective as global markets develop. Policies and international law need to keep pace with the increasing international integration of economic and social relations. Rules and standards must be harmonized, policy areas must be brought into alignment, and action must be taken to offset the disadvantages faced by the weaker partners. To that end, decision-making structures are needed which ensure across-the-board participation.

Take note of developing countries' situation

Third: In all areas, we need to take account of the developing countries' special situation. The globalisation of economic activities represents a huge challenge for the developing countries: many countries need to subject their economies to comprehensive reforms so as to become competitive and to use the new opportunities to the benefit of the mass of the population. The WTO is increasingly moving beyond its traditional realm of tariffs and quotas; it is increasingly dealing with issues which are not part of traditional trade policy. This blurs the clear line between trade policy and other policy areas, especially development policy. A future multilateral trade regime will only be able to function if multilateral rules take account of developing countries' special interests and of their limited capacity, and if the rules are inter linked with development support programs. It is particularly important to take account of the developing countries' interests in the area of so-called 'New Issues'. The erroneous impression has arisen that new WTO rules in these areas are solely in the interest of the industrialized countries. To a certain extent, this is the industrialized countries' own fault, because they have focused on certain questions and neglected others.

That can be demonstrated using the example of 'trade and environment'. The industrialized countries, or more specifically the EU, have been concentrating on the precautionary principle, on labelling issues, and on the compatibility of multilateral environmental agreements and WTO rules. Other topics, some of which are highly relevant for the developing countries, have hardly been discussed at all so far, for instance:

• exports of environmentally hazardous products which are domestically banned in the country exporting them,
• the question of how to foster the transfer of environmental technology, the potential environmental damage caused by tariff escalation (higher tariffs on processed commodities than on primary commodities),
• he potential environmental damage caused by subsidies in areas such as fisheries, agriculture, energy, or transport.

It must therefore be ensured in future negotiations on New Issues that the developing countries' special interests and institutional capacity and the high implementation costs of new rules be taken into account.

The example of
agricultural policy

Agricultural policy is a good example to illustrate the challenges we are faced with. It is evident that consumers in Germany and Europe are attaching ever more importance to high quality standards for food. The German government will be giving greater attention to consumer protection in future. This also includes certain rules for mandatory food labelling.

It cannot be denied that there is a risk of such standards being misused for the protection of national markets. However, the consequence cannot be that we dispense with standards and neglect consumer protection. Rather, we need to make sure that standards and labelling rules are designed in an appropriate and transparent manner and take account of developing countries' special situation. We also need to give increased support to the developing countries in strengthening relevant institutions and capacities.

Moreover, Germany and the EU will only be able to allay developing countries' reservations by further improving their market access and by reducing all forms of export subsidies. That is the best proof of our credibility. If developing countries meet the strict standards for food production, they must not be kept out of our market through excessive tariffs. High tariffs apply mainly to processed goods, especially in the food sector. This is a problem especially because world market prices for most commodities are declining and the terms of trade are increasingly deteriorating for these countries. They depend upon new markets for their processed products if they are to achieve sustainable economic development and reduce poverty. The German government therefore advocates using the next world trade round to reduce or abolish import duties for important processed commodities from the developing countries.

Conclusion - New WTO Round

The WTO will be meeting in November in Qatar for its fourth Ministerial Conference. The Seattle experience has made it very clear that the developing countries must be better integrated in the world trade system - by means of improved market access, by taking account of their interests in all areas under negotiation, by building domestic capacity and institutions, and by means of giving them a more active role within the WTO mechanisms.

Taking account of the developing countries' interests and giving them an equal part in consultation and decision-making structures is an expression of shared responsibility, and mandated by the need for achieving a fair balance of interests.

This brings me back to my original question: can the divide between the industrialized and the developing countries be overcome? I am convinced - and I hope that this is not just the professional optimism of a development minister - that there is a joint answer: the next world trade round will either be a development round or there will not be one at all.